Green Macroprudential: How Effective Are Green Financial Instruments in Maintaining Economic Stability?
Keywords:
Green Finance, Financial Stability, ESG, ARDL Panel, Green Macroprudential PolicyAbstract
This study aims to analyze the effectiveness of green macroprudential instruments in maintaining financial system stability in Indonesia. The approach used is the Panel Autoregressive Distributed Lag (PARDL) model with data from five major banks in Indonesia—Bank Mandiri, BNI, BRI, BCA, and OCBC NISP—during the 2015–2024 period. The variables analyzed include Green Financing (GF), Environmental, Social, and Governance (ESG) Score, Capital Adequacy Ratio (CAR), Return on Assets (ROA), Non-Performing Loan (NPL), and Z-Score as indicators of bank stability. The results of the study show that green financing and ESG scores have a significant positive effect on banking stability both in the short and long term. The control variables CAR and ROA also have a positive effect, while NPL has a negative influence on stability. These findings confirm that green financing plays a role as an effective macroprudential instrument in strengthening the resilience of the financial system. This research also confirms the role of green policies carried out by the Financial Services Authority (OJK) through the Sustainable Finance Roadmap and Green Taxonomy in encouraging national financial stability. In practical terms, these results provide recommendations for banks and regulators to expand the implementation of green finance as a strategy to mitigate climate risks and strengthen sustainable economic stability.
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